Energy, Food, Demographics and the Future of Humanity (Part 3)

Chapter 3- The role of natural gas

Like all commodities, oil has a limited supply. Oil is a mix of dead organisms, mud and sand. Add time and pressure and you get oil. In the 20th century, there was no shortage of theories as to when the world would run out of oil. What all these Phd people disregarded was human ingenuity and technological advancement. The 21st century brought new ways of extracting unconventional oil and supply now seems unlimited.

Natural gas is primarily made up of methane. It was usually a by-product of extracting oil. If no use was found for this gas it was re-injected into the well to increase pressure and facilitate extraction of more oil or liquefied and sold as Liquefied Natural Gas.

natural gas

Fossil fuels occur in the three states of matter: in solid form as coal; In liquid form as oil and in gaseous form as natural gas. Among the fossil fuels, natural gas emits the least CO2. However, some reports show that natural gas extraction creates small earthquakes and contaminates subterranean water. Natural gas should therefore be seen as a bridge between oil and clean energy. The ultimate step being solar and wind energy.

Due to its global availability, demand flexibility, low CO2 emission and relatively low extraction cost compared to other energy sources, natural gas will play a major role as an energy source in the next decades. Indeed, unlike oil, natural gas generally requires less processing for terminal use and therefore costs less than oil (In BTU terms, $1 of natural gas can obtain 200,000 units of energy (at a spot rate of $5/million BTU) compared to $1 of WTI oil which garners 60,000 units of energy (at a spot rate of $97/barrel))*. These favorable characteristics have enabled natural gas to penetrate many markets.

According to EIA the global sources of energy are:

Transportation: 94% comes from petroleum
Industrial: 40% from Petroleum and 40% from natural gas
Residential and commercial: 75% from Natural Gas
Electric Power: 50% from Coal, 20 % from Natural Gas, 20% from Nuclear

With my limited knowledge of power generation, I was able to find some future opportunities for natural gas: 1) In the industrial sector, through the conversion of coal-fired boilers to natural gas boilers.2) In the chemical industry as a growing source of hydrogen production for petroleum refining. 3) And a further transfer from coal based power generation to natural gas power generation in the power industry.

Due to its gaseous nature, natural gas is mostly delivered by pipeline. The implications is that different regions have different gas prices as gas is not easily transferable from one place to the other like crude oil. The price fluctuates around 4$ in the US, around 9$ in Europe and around 15$ in Asia.

Although there are large supplies of gas, outside the US the gas is concentrated mostly in three countries: Qatar, Iran and Russia. They are however still far from having the fracking technology to extract most of it.

Natural gas will without a doubt play an important role in the future of energy supply. It is one of the most economical ways of reducing CO2 emission and powering up the world. Surely, regulations will have to be implemented to ensure right practices. However, natural gas should be seen for what it really is: an economical way of reducing CO2 emission in the short term and switching to cleaner energy in the long term.

Georges Boustany

References:
http://www.cmegroup.com/education/featured-reports/energy-price-spread-natural-gas-vs-crude-oil-in-the-us.html

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